Santander was able to sell a EUR1bn 10 year cédulas hipotecarias today (Thursday), but bankers were surprised that it did not attract more than EUR1.1bn of orders at an apparently attractive spread, with ongoing cautiousness and pressure on Spanish bank stocks today apportioned blame.

The Spanish bank announced its first benchmark covered bond since January 2016 this morning, targeting a 10 year deal via Credit Suisse, Natixis, Santander and UniCredit, with initial guidance of the 23bp over mid-swaps area.

This was judged attractive, although a syndicate banker at one of the leads said that it was difficult to judge fair value given how squeezed Santander’s outstanding paper is. Its January 2026 issue was quoted at 1bp-2bp over mid-swaps, for example, while a CaixaBank January 2028 issue, launched at the beginning of this year, was quoted at around 21bp. One analyst suggested fair value for the new issue would be around 14bp-15bp over, with Santander perceived as a better credit than CaixaBank.

However, the pricing was only tightened 1bp during execution, to the re-offer spread of 22bp over, while the transaction – albeit a EUR1bn size – was only marginally oversubscribed, totalling some EUR1.1bn.

“At first glance it was a wide starting point,” said a syndicate banker away from the leads. “The final outcome was therefore quite disappointing.”

The lead syndicate banker acknowledged that the new issue had been expected to go better. He suggested that market conditions remained tricky, in spite of recent improvements, and said that the longer maturity could partly explain the deal’s outcome, with some investors averse to going so far along the curve. The transaction if the first 10 year benchmark covered bond in over three weeks and the first EUR1bn 10 year since early September (ING-DiBa included a longer, EUR500m 15 year tranche on a EUR1.5bn dual-tranche deal two weeks ago).

The lead banker also noted that the deal may have looked expensive versus Spanish government bonds to some investors, coming some 50bp inside Bonos.

Some market participants said demand may also have been affected by a Spanish Supreme court ruling on mortgages today that could prove costly for the country’s banks, resulting in their share prices falling sharply – Santander closed down almost 3%.

The lead syndicate banker acknowledged that this may have contributed negatively to the deal’s outcome, but said that a secured instrument from such a national champion should not have been expected to be influenced thus – he said that he would have not proceeded with a senior non-preferred issue from a second tier Spanish bank today, for example.